Gold and silver continue to prove their worth as a hedge against global economic uncertainty. Ongoing tension between China and the west, coupled with the coronavirus pandemic, drove gold prices close to $1,800. As of now, it sits just $200 below the 2011 all time high of $1921.41. Given the unlikelihood of a quick solution to any current issues, gold prices may remain at these levels – or break higher – sometime this year. There is also a potential correlation between heightened prices and the instability inherent in an election year.
Gold’s uptrend began in early 2016 – after a prolonged downtrend that began in 2012. The only potential hiccup comes from severely lowered overhead costs for mining. Oil prices continue to hemorrhage in the aftermath of the Russo-Saudi spat, with fuel being the major cost associated with mining. With demand for gold and silver surpassing supply, this creates a perfect storm for precious metal miners to thrive.
Precious Metals or Associated Stocks?
High gold prices naturally drive up gold mining related stocks. The overall stock markets have recovered markedly since their March lows, but remains lower overall. Mining stocks – including gold, silver and others – are up over 100%. As such, it may be more prudent for traditional investors to buy into the stock side of the gold industry.
For those with more confidence in precious metals, there is no indication that the price will drop anytime soon. Silver appears poised for a considerable rally, following in gold’s footsteps. Of course, given the current shaky nature of global economic infrastructure, physical possession of investments could become critical.
Hedging Against the Economic Crisis
Recent economic woes came alongside spikes in gold prices. During the 2008 “Great Recession,” gold prices steadily increased through 2011. A continued rally for the price of gold will be highly dependent on actions by governments and larger entities to counter the crisis.
With global central banks throwing trillions of dollars-worth of stimulus to help curb the COVID-19-led economic downturn, precious metals are finally beginning to come back into the spotlight. This environment creates a bullish backdrop for gold and silver to potentially revisit and exceed their highs from ten years ago. If the spot price of precious metals continues, expect the associated miners to follow suit.
Article By: Adam Stone
